Citigroup Earnings Unlikely to End Downtrend

Citigroup Inc. (C) heads a full roster of commercial bank earnings next week, reporting fourth quarter results in Monday's pre-market. Analysts are looking for the company to post earnings per share of $1.55 on revenue of $17.6 billion after beating third quarter earnings estimates and coming up short on revenues in October. The stock bounced for a day after that release and then turned sharply lower, dropping 30% into late December.

The vertical decline into year end gave up the last tranche of gains posted after the 2016 presidential election, trapping complacent shareholders while failing the breakout above the 2015 high near $61. It's wise to expect aggressive short sellers to reload positions if the current bounce reaches that level, which might happen in reaction to strong quarterly metrics. At this point, it will take volume-supported upside through the mid-$60s to restore the broken uptrend.

C Monthly Chart (1990 – 2018)

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The stock tested the 1988 low in 1990 and turned higher, entering a trend advance that issued seven splits, with the last one preceding the September 2000 top at $551 by a few days. Citibank shares got cut in half in the next two years, finally bottoming out at $228, ahead of a bounce that completed a round trip into the prior high in 2004. Buyers then vanished once again, yielding a slow-motion decline that carved a broad rounded correction into a December 2006 breakout.

That rally ended just three weeks later, posting an all-time high at $570, while the subsequent decline gathered steam in October 2007 after breaking range support near $450. The stock collapsed in the second half of 2008, coming close to bankruptcy in a historic descent to an all-time low at $9.70. It bounced back into the mid-$50s in the summer of 2009, establishing heavy resistance that took more than seven years to overcome.

Breakout attempts in 2011, 2013, 2014 and 2015 failed while price action posted two higher lows, setting the stage for the 2016 breakout. The rally added just 25 points into January 2018, when aggressive sellers took control in a multi-wave decline that initially found support in the mid-$60s in June. A bounce into September stalled well below the prior high, triggering a downturn that accelerated to new lows in the fourth quarter.

The monthly stochastics oscillator entered a buy cycle following the June 2018 low and crossed to the downside in October before reaching the overbought level. It's still pointed lower despite the early January bounce but hasn't reached the oversold level yet. This positioning increases downside risk if quarterly earnings fail to inspire a buy-the-news reaction, exposing a trip back to the December low.

C Weekly Chart (2016 – 2018)

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However, the weekly indicator is engaged in a buy cycle that started after the December low, with the conflicting cycles telling market players to expect mixed price action into the foreseeable future. The reversal started just below the .618 Fibonacci retracement level of the 2016 into 2018 uptrend and has now reached the 50% retracement. The broken 200-week exponential moving average (EMA) has aligned with the .618 retracement at the same time, identifying a low-risk short sale entry zone in the low $60s.

There's little to love in this bearish price structure, which looks like an oversold bounce within a growing downtrend. The stock may also be engaged in a fourth-wave countertrend within an Elliott five-wave decline that has the potential to reach the low $40s. It's hard to tell if positive catalysts like a Fed pause or trade deal will have much impact at this point due to broken support levels and accumulation readings dropping to the lowest lows since 2016.

The Bottom Line

Citigroup stock could bounce in reaction to a strong earnings report next week, but heavy resistance in the low $60s is likely to end any recovery wave.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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